Provisional Regulations on Enterprise Income Tax of the People's Republic o

(Promulgated on Order [1993] No. 137 of the State Council on Dec. 13, 1993)

Article 1 All enterprises within the territory of the People's Republic of China, except enterprises with foreign investment and foreign enterprises, shall pay enterprise income tax on their income from production, business operation and other incomes in accordance with the provisions of these Regulations.

The income of an enterprise from production, business operation and other sources shall include income obtained in and outside China.

Article  2  The enterprises and institutions with independent economic accounting as cited below shall be taxpayers of enterprise income tax (hereinafter referred to as "taxpayers").

1. State-owned enterprises,

2. Collective enterprises,

3. Private enterprises,

4. Associated enterprises,

5. Joint stock enterprises,

6. Other institutions that have income from production, business operation or other incomes.

Article  3 The amount of tax payable shall be assessed at the rate of 33% of the taxable income of a taxpayer.

Article  4 The taxable income of a taxpayer shall be the balance of the total income of a tax calendar year minus the tax-deductible items.

Article  5  The total income of a taxpayer shall include the following:

1. Income from production and business operation,

2. Income from transfers of assets,

3. Income from interests,

4. Proceedings from rents,

5. Income from royalties,

6. Income from dividends,

7. Other income.

Article  6 The items permitted to be deducted from the taxable income of a taxpayer are the costs, other expenses and losses incurred for the income of the taxpayer.

The following items may be deductible within the range and by the norms defined by relevant regulations:

1. The interests, which a taxpayer pays to a banking institution on a loan he has borrowed during the term of production or business operation, shall be deducted by the actual amount, and as for payment of interest on a loan borrowed from a non-banking institution, the portion of interest payment that is no more than the amount computed at the interest rate of the same type and same term of loan issued by banking institutions shall be deductible from the taxable income.

2. The wages a taxpayer pays to its employees shall be deducted on the basis of the taxable wages. The standards of taxable wages shall be fixed by the people's governments of the provinces, autonomous regions and municipalities directly under the jurisdiction of the State Council within the range prescribed by the Ministry of Finance and reported to the Ministry of Finance for the record.

3. The fund for the trade union of workers, expenditure on workers welfare and expenditure on workers' education paid by a taxpayer shall be deductible at the ratio of 2%, 14% and 1.5% of the taxable payroll.

4. Payments by a taxpayer for public welfare or relief donations shall be permitted to be deducted by within 30% of the annual taxable income.

Except those listed in paragraph two of this Article, other items shall be deducted in accordance with the relevant stipulations of the law, administrative decrees and other relevant state regulations on taxation.

Article  7 In assessing the taxable income, the following items shall not be deductible:

1. Capital expenditure,

2. Expenditure on acquiring intangible assets and on development of new products,

3. Payments for fines and losses resulting from confiscation on account of illegal business operation,

4. Fines for delayed tax payments, fines and penalties,

5. The portion of losses sustained from natural adversities or accidents which is entitled to compensation,

6. The portion of payments for public welfare or relief donations and other charity payments in excess of the permissible deductible norm defined by the state,

7. Expenditures on all sorts of supportive contributions, and

8. Other expenditures irrelevant with income.

Article 8 A preferential tax policy shall be available to taxpayers cited below:

1. Local enterprises of places of national autonomy that are in need of particular attention and encouragement may enjoy tax reduction or exemption for a certain period of time with the approval of a provincial people's government.

2. Enterprises permitted for tax reduction or exemption in accordance with the law, administrative decrees and relevant stipulations of the State Council may be applied thereby.

Article  9 Should a taxpayer's financial and accounting systems applied to the computation of the taxable income contradict the state regulations on taxation, the tax amount payable  thereof shall be computed in accordance with the state regulations on taxation.

Article  10 A taxpayer in its business connections with its associate enterprises shall give and accept payments or charges in line with the business activities between independent enterprises. In case the taxpayer has not acted in line with the payments and other expenditure between independent enterprises and thus reduced its taxable income, the tax authorities shall have the right to make proper readjustment of the taxable income of the taxpayer.

Article  11 The annual losses sustained by a taxpayer shall be made up for from the income of next year, and if the income of the succeeding year is insufficient for making up for the loss of the previous year, the loss may be made up in the next succeeding year, but this process shall not last for more than five years.

Article  12 The income tax paid outside China by a taxpayer on its overseas taxable source shall be permitted to be deducted from its taxable income in China, but the deduction shall not exceed the tax amount payable on its overseas income in accordance with these Regulations.

Article  13 In the event of liquidation of a taxpayer, the favorable balance after the liquidation shall be liable to enterprise income tax in accordance with these Regulations.

Article  14 A taxpayer shall pay enterprise income tax to the local tax authorities, unless it is otherwise stipulated by the state.

Article  15 The enterprise income tax shall be computed on a yearly basis, and advance payment be made monthly or quarterly. Monthly or quarterly advance payment shall be made within 15 days after the end of the month or quarter and final annual settlement shall be made within four months after the end of the year, with favorable balance refunded to and unfavorable balance made up by supplementary payment by the taxpayer.

Article  16 A taxpayer shall submit accounting statements and file advance tax payment returns to the local tax authorities within 15 days after the end of each month or quarter, and send its final settlement statements and file income tax returns to the local tax authorities within 45 days after the end of the year.

Article 17 The administration of enterprise income tax shall be implemented in accordance with the "Tax Administration Law of the People's Republic of China" and these Regulations.

Article  18 The enterprise income tax on the banking and insurance industries shall be paid in accordance with relevant regulations.

Article 19 The Ministry of Finance shall be responsible for the interpretation of these Regulations and formulate the Rules for the implementation thereof.

Article  20 These Regulations shall go into effect as of January 1, 1994. The "Regulations on the Income Tax on State-Owned Enterprises of the People's Republic of China (Draft)" and the "Procedures for the Collection of Regulation Tax on State-Owned Enterprises" promulgated by the State Council on September 18, 1984, and the "Provisional Regulations on Income Tax on Collective Enterprises of the People's Republic of China" promulgated on April 11, 1985, and the "Provisional Regulations on Income Tax on Private Enterprises of the People's Republic of China" promulgated on June 25, 1988, by the State Council shall be abrogated therefrom, and the procedure of the State Council regarding payment of enterprise income tax by state-enterprises on a contract basis shall cease to be implemented as from the same day.